Australian shareholders may soon be looking at a firm’s business plan for climate change adaptation when considering their investments.
A new report from the National Climate Change Adaptation Research Facility (NCCARF) outlines the steps that Australian businesses should take to ensure that company value is protected against the impact of climate change.
“If evidence regarding the accelerating pace of climate change increases along with firm awareness of potential consequences, the demand for risk assessment and adaptation will grow,” Associate Professor Jason West, of Griffith University’s Department of Accounting, Finance and Economics says in his paper “Climate change adaptation in industry and business” released through NCCARF this week.
“A crucial first step in any climate change adaptation initiative is for companies to assess the implications of climate change on their systems and processes, workplace environment and external effects to determine whether, and the extent to which, climate change will have an impact, pose a risk or offer beneficial opportunities,” Associate Professor West said.
In conducting the research, Associate Professor West and Professor David Brereton met with industry groups across Australia to assess the impact of climate change on business and what measures were being undertaken or planned.
“The approach (by each business) should be proportionate to the size and nature of the organisation and the types of risk it faces,” Associate Professor West says.
“For example, organisations that face similar risks with an average temperature rise of 2ºC compared with, say, 5ºC can plan a strategy to cope without necessarily conducting a detailed analysis of the probability of each of these outcomes.
“There are many examples of adaptation measures that have already been implemented where climate change has been factored into planning and development. Most of them involve large infrastructure assets on the coast with a long expected operational life.
“Such measures include the installation and upgrade of levees as well as projections of sea level rise being factored into coastal infrastructure and land management/development policies, investment in climate-proofing of buildings and infrastructure, development of integrated risk assessment tools in the insurance industry and investment in drought-proofing measures.”
The report outlines different responses that business can adopt:
· Bear losses. All adaptation measures can be compared with the baseline response of ‘doing nothing’ – that is, bearing or accepting the losses.
· Share losses. This type of adaptation response involves sharing the losses among the wider industry or business community. However, the use of public funds for losses incurred by private entities that choose to ignore their exposure to climate change is likely to greatly diminish in the future.
· Modify the threat. For some risks, it is possible to exercise a degree of control over the environmental threat itself. When this is a ‘natural’ event, such as a flood or a drought, possible measures include flood-control works (dams, dykes, levees).
· Prevent effects. A frequently used set of adaptation measures involves steps to prevent the effects of climate change and variability. In agriculture such measures include changes in crop management practices, such as increased irrigation water, additional fertiliser use and pest and disease control. In other industries, it may require a simple change in operating practices.
· Change use. Where the threat of climate change makes the continuation of an economic activity impossible or extremely risky, consideration can be given to changing the use. For example, the agricultural sector may choose to substitute a more drought-tolerant crop or switch to varieties with lower moisture.
· Change location. A more extreme response is to change the location of economic activities. This may be relatively easy for some operations, but for others such as mining or agriculture, relocation is almost impossible.
· Research. The process of adaptation can also be advanced by research into new technologies and new methods of adaptation.
“Companies taking action to adapt to climate change are encouraged to identify current and potential impacts on business, reduce vulnerability to them and take advantage of any potential opportunities they present,” Associate Professor West says. “Our report offers a framework that companies can use to not only assess the vulnerability of their assets and operations but also ensure that they properly account for and disclose adaptation activities to their investors and implement appropriate governance methods.”
“Companies and other entities will increasingly and inevitably address adaptation as aspects integral to their business strategy.”
Source: Griffith University